The Ten Commandments for Managing Value-at-Risk Under the Basel II Accord

Juan Jimenez-Martin, Michael McAleer and Teodosio Pérez-Amaral

No 2009-12, Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

Abstract: Under the Basel II Accord, banks and other Authorized Deposit-taking Institutions (ADIs) are required to communicate their daily market risk estimates to the relevant national monetary authority at the beginning of each trading day, using one of a variety of Value-at-Risk (VaR) models to measure risk. The purpose of this paper is to provide a simple explanation and a set of prescriptions for managing VaR under the Basel II Accord. The commandments deal with understanding the Basel II colours, understanding the risk model before choosing, varying the choice of risk model, avoiding the green zone and being willing to violate, incurring large violations, stopping before the red zone, avoiding frequent violations, avoiding the estimation of large portfolios, aggregating portfolios into a single index, and interpreting commandments sensibly as guidelines.

Keywords: Financial portfolios; daily capital charges; frequency of violations; magnitude of violations; optimizing strategy; risk forecasts; value-at-risk; green zone; red zone. (search for similar items in EconPapers)
JEL-codes: G11 G17 G32 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://eprints.ucm.es/id/eprint/8691/1/0912.pdf (application/pdf)

Related works:
Journal Article: THE TEN COMMANDMENTS FOR MANAGING VALUE AT RISK UNDER THE BASEL II ACCORD (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucm:doicae:0912

Ordering information: This working paper can be ordered from
Facultad de Ciencias Económicas y Empresariales. Pabellón prefabricado, 1ª Planta, ala norte. Campus de Somosaguas, 28223 - POZUELO DE ALARCÓN (MADRID)
https://www.ucm.es/f ... -de-trabajo-del-icae

Access Statistics for this paper

More papers in Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico Contact information at EDIRC.
Bibliographic data for series maintained by Águeda González Abad ().